Indian oil refiners are sucking up cheap Russian crude, but the risk is that their exports of refined products will eventually attract sanctions from countries determined to cut Russian energy out of global markets.
Imports of Russian crude by India hit a record high in May and will likely rise again in June, according to data compiled by commodity analysts at Kpler in Brussels.
India imported 840,645 barrels per day (BPD) of Russian crude in May, up from 388,666 in April and 136,774 in May last year, the data showed.
June imports are estimated at 1.05-million BPD, meaning Russia’s share of India’s imports will rise to just under one quarter, a dramatic spike considering they were about 2% of the total last year.
Indian refiners are happy to buy heavily discounted Russian crude, which is being offered at up to $40 (about R620) a barrel below benchmark Brent crude prices.
Russia’s crude exports have been targeted by Western countries as part of sanctions aimed at punishing Moscow for its February 24 invasion of Ukraine.
The EU announced this week a ban on seaborne imports from Russia and, with Germany and Poland committing to ending pipeline imports, about 90% of Russia’s exports to the 27-nation bloc will end.
Other importers of Russian crude have said they also aim to end or reduce their purchases, including major buyers of the country’s Pacific exports, such as Japan and South Korea.
However, China, the world’s biggest crude importer, and India, the third-largest, have thrown a lifeline to Russian exporters, buying increasing volumes to take advantage of the cheaper price relative to other suppliers.
The risk for India’s refiners is that buyers of their product exports start to target these cargoes, given the possibility that some of the diesel or petroleum was refined out of Russian crude.
India’s Reliance Industries is a case in point.
It’s likely countries buying and processing Russian crude, then exporting refined fuels, such as India and possibly China, will find themselves under scrutiny from those governments trying to isolate Russia’s energy exports.
It operates a 1.2-million BPD refinery complex at Jamnagar on India’s west coast and while it does supply fuel to the domestic market, much of the output is exported.
The port of Sikka handles Reliance’s crude imports and Kpler data shows 10.81-million barrels of Russian crude arrived in May, or about 348,000 BPD.
The same port exported 2-million barrels of diesel, or about 64,500 BPD, to Australia in May, according to Kpler.
Australia imposed a ban on imports of Russian oil and refined products on March 11. It came into force on April 24.
It’s not clear whether the ban applies to fuel refined from Russian crude in a third country, such as India.
But it’s likely the Australian government is going to be asked these questions and will have to work out whether it extends the ban on Russian fuels to those coming from third country refineries.
Sikka also exported 2.56-million barrels of diesel to Europe in May, while it shipped 890,000 barrels of petrol to the US in April.
It’s not just Reliance that may be exporting refined fuel made from Russian crude, with Nayara Energy, which operates India’s second-largest refinery, also at risk.
It is owned by a subsidiary of Russia’s Rosneft and a subsidiary of commodity trader Trafigura, and operates a refinery at Vadinar on India’s west coast.
This port exported 340,000 barrels of diesel to Australia in May, which Kpler said was sold by Nayara.
Overall, it’s likely countries buying and processing Russian crude, then exporting refined fuels, such as India and possibly China, will find themselves under scrutiny from those governments trying to isolate Russia’s energy exports.
There is the risk of secondary sanctions being imposed, but also of measures to make the physical trade more difficult, such as sanctions on ships that have visited Russian ports, bans on insuring Russian crude cargoes or cargoes of refined products made from Russian oil.
As the world has seen with the sanctions against Iran’s oil and product exports, countries and organisations facing such measures try to stay one step ahead, employing subterfuge to mask the true origins of cargoes.
A new game of cat-and-mouse involving Russia’s energy exports is just getting started.
— Reuters
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